As the eurozone bumps along from major crisis to minor crisis to existential crisis, the point is often made that a key feature of successful monetary unions that is missing in the eurozone is a system of transfers. These transfers act a sort of compensation for renouncing the option of pursuing an independent monetary policy.

Well the Council of the Federation began meeting in St. John’s yesterday and given we are on the cusp of a federal election, there will no doubt be a targeting of Ottawa’s role in provincial finances. Naturally, there will be some lamentations about the Prime Minister’s absence – once again – from this annual meeting. As Ontario’s premier has already noted: ““I think that is very important. Now, even that shines a light on how much better it would be if we were having a conversation with the prime minister all along. If the prime minister were there, had always been there, I think it would be a much better launching point for this discussion, but you know.”

Q. You are the New Keynesian governor of an inflation targeting central bank. Two bits of information arrive simultaneously: GDP is lower than you expected; employment is higher than you expected. Relative to what you had otherwise planned to do, how do you respond to the news? Do you loosen monetary policy (because of bad GDP news), or do you tighten monetary policy (because of good employment news)?

Another Canada Day, another year of Confederation – we are now 148 years old– and another opportunity for taking a historical look at some economic aspects of Canada. For your Canada Day musings, I decided to take a look at economic indicators according to the tenure of Bank of Canada Governors since 1934 (the legislation was passed in 1934, the institution opened its doors in 1935) – when our venerable central Bank began its operations.

Steve Poloz is good at economics, but not always so good at finding the best metaphor.

Greg Quinn says "Bank of Canada Governor Stephen Poloz said his “controversial” decision to cut interest rates in January could be compared to life-saving surgery for the economy and any resulting increase in household debt should be viewed as a necessary side effect."

A better metaphor would use the old proverb "a stitch in time saves nine". (If you delay stitching a tear in your jeans, the tear will get bigger, and you will need even more stitches later.) If the Canadian economy did need a cut in interest rates in January, a delay would have weakened the economy more and more over time, requiring the eventual cut in interest rates to be even bigger.

So if there are bad side effects from cutting interest rates (if stitches are necessary but costly), that actually strengthens the argument for doing a stitch in time.

Of course, if you delay stitching the tear in your jeans forever, then your jeans will die. Which is where Steve's metaphor comes back to life.

We should learn from Sweden's Riksbank's recent mistake. It kept interest rates too high for too long, for fear that cutting rates would lead to increasing debt, which meant it eventually had to cut interest rates even lower than if it had done so in a timely fashion.

(I'm still not sure whether the Bank of Canada really did need to cut interest rates in January, but if you think you probably need to cut interest rates, you should cut now. "Let's wait and see if it gets worse" is not a good strategy. And this argument for a "stitch in time" works in reverse too, if you think that interest rates probably should be raised, but are worried about the side-effects.)

If you recall, several posts ago I lamented that the downloadable csv files that used to be part of archived web edition of Historical Statistics of Canada seemed to have disappeared or were not working. I am delighted to say that the files are back.

With all the doom and gloom with respect to slowing Canadian economic growth and talk of secular stagnation, it is useful to look at a comparison between the last few years in Canada with what transpired during the Great Depression. References are often made that the 2008-09 Recession and its aftermath is a period comparable to the Great Depression.

For whatever reason, Statistics Canada has changed the nature of the access to its web version of Historical Statistics of Canada. Until recently, the electronic version of this classic work of data (with paper editions published in 1965 and 1983) covering Canada from 1867 to the mid 1970s provided the tables of the assorted sections in HTML, PDF and CSV formats. That has changed and not exactly for the better.

The Canadian media does a pretty good job of covering Statistics Canada and OECD news releases, and think tank reports. Where they lag behind the US is in coverage of academic research.

Take, for example, a paper published in Canadian Public Policy last year by Luc Godbout, Yves Trudel and Suzie St-Cerny on the rate of return that Canadians can expect to receive on their contributions to the Canada Pension Plan. It shows someone who retired in the mid-1990s could expect to receive a 10 percent rate of return on their Canada Pension Plan contributions, but late boomers, Gen-Xers and subsequent generations can expect a rate of return closer to 2 percent.

The rising expense of local government services is increasingly capturing the attention of pundits and policy makers alike. The rising cost of policing and fireservices in particular and their effects on local budgets and ratepayers, has drawn the attention of Canadian municipal leaders. What is also interesting is the overall growth in local government employment in general over the last decade at rates much greater than the growth in total employment.

I suppose I have become somewhat obsessed with Ontario’s economy and its performance but here I go again with a few comparisons. Ontario is strategically located on the Great Lakes-St. Lawrence waterway adjacent to the huge population of the US northeast. Its neighbours are trade partners and markets as well as economic competitors. How does Ontario stack up to its immediate American and Canadian neighbors – namely, Minnesota, Wisconsin, Michigan, Ohio, Pennsylvania and New York, and then Manitoba and Quebec?

Vector auto regressions (VARs) are supposed to tell us how the economy would respond over time if hit by a shock, by looking at past patterns of responses to shocks. A "shock" means "a deviation of one of the variables in the VAR from the level that was forecast by the VAR". And "shocks" include policy shocks.

1. Suppose at its next meeting the Bank of Canada increased the overnight rate from 0.75% to 1.50%. And suppose this was a totally unexpected move. And suppose a computer glitch meant that the Bank's statement explaining why it had done this was never published. How would markets react to the shock?

2. Now ask exactly the same question, but suppose the Bank of Canada instead reduced the overnight rate from 0.75% to 0.00%. How would markets react to the shock?

A VAR would give exactly opposite answers to those two questions. If you take the answer to the first question, reverse all the signs, you would get the answer to the second question. (That's only strictly true for a linear model.)

I think the answers to the two questions would be pretty much the same. The immediate response would be: "WTF!?".

Well, another Ontario budget has come and gone.The government still plans to balance its budget by 2017. According to the budget projections it will do this largely by increasing revenues and restricting expenditure growth.

In honour of the 2015 Federal Budget and the balancing of the budget, why not a retrospective on Canadian federal government deficits since 1867. In the period from 1867 to 2014, the Federal government has run a deficit in 108 out of 148 years or 73 percent of the time. In nominal terms, the federal budget balance has ranged from a deficit of 55.598 billion dollars in 2009 to a surplus of 19.891 billion dollars in 2000. Perhaps a better indicator of the size of the budget balances over time would be in relation to national output - that is a deficit to GNP or GDP ratio.

“We're two ships that pass in the night, And we smile when we say it's alright We're still here, It's just that we're out of sight Like those ships that pass in the night” Barry Manilow

Next week is a double-header of sorts for economists interested in Canadian public finance – a Federal budget on Tuesday and the Ontario budget on Thursday.The Federal government is generally expected to balance its budget notwithstanding all the recent hand-wringing over the “atrocious” economy.Ontario on the other hand will once again make a faith based fiscal statement that it is on track to balance its budget by 2017.

Well, the past week saw notifications go out to academic economists on the results of their 2014-15 Social Science and Humanities Research Council of Canada (SSHRC) Insight Grant applications. Needless to say, there will be a lot of unhappy campers but then there always are when it comes to grant application success. Needless to say, unhappiness has probably been on an upward trend given the fall in success rates not just in economics but across all disciplines. The outcomes in economics are an interesting example of recent trends.

The OECD has cut its growth forecast for Canada citing the drop in oil and commodity prices. With all the talk about the slowdown in the Canadian economy picking up steam and slow growth as a result of the drop in oil prices that began last spring, one might expect some job losses to start emerging in places like Calgary or Regina. Interestingly enough, most Canadian CMAs have continued to grow their employment over the course of the last twelve months.

Well, there seems to be a fair amount of fuss over the proposed doubling of the contribution limit to Tax Free Savings Accounts(TFSAs). Kevin Milligan says the case for raising the annual TFSA limit is shaky as the benefit will be mostly to high wealth households rather than those at the middle or bottom of the wealth distribution. There have been reports by the Broadbent Institute (the Kesselman study) as well as the Parliamentary Budget Office that also raise concerns about how over time the implementation of the expanded limit will increase the size of the tax exempt base and erode future government revenues. Indeed, my WCI colleague Frances sees this as part of a long term agenda to constrain the size of government.

Perhaps I'm reading too much into it. But I see a tension in Steve's speech. He recognises that Divine Coincidence has failed, and that inflation targeting has failed. But he doesn't want to change the "quasi-constitutional" (I think that was David Laidler's phrase?) 2% inflation target.